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Understanding the Difference
By Dr. David Edward Marcinko MBA CMP™
GOAL: To understand the difference between fiduciaries and non-fiduciaries, examine the SEC conduct rules.
Stock-Brokers (non-fiduciaries) are subject to FINRA Conduct Rule 2310(a) which reads:
In recommending to a customer the purchase, sale or exchange of any security, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his security holdings and as to his financial situation and needs.
A fiduciary follows a higher standard of conduct:
A fiduciary duty is an obligation to act in the best interest of another party. A fiduciary obligation exists whenever the relationship with the client involves a special trust, confidence and reliance on the fiduciary to exercise his discretion or expertise in acting for a client. A person acting in a fiduciary capacity is held to a high standard of honesty and full disclosure in regard to the client and must not obtain a personal benefit at the expense of the client.
Five primary responsibilities as a fiduciary to clients are:
- To always put clients’ interest first
- To act with utmost good faith
- To provide full and fair disclosure of all material facts
- Not to mislead clients, and
- To expose all conflicts of interest and all compensation to clients.
More:
- An Interview with Bennett Aikin AIF®
- Physician-Investors and the “F” Word
- Why we cannot assume CFP® equals “Fiduciary”
Assessment
Conclusion
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